Business year-end for tax breaks
Two depreciation-related tax breaks, Tax Cuts and Jobs Act (TCJA), are becoming popular year-end tax planning tools for businesses, and you can get in on the action. To take advantage of these breaks, you must purchase qualifying assets and place them in service by the end of the tax year. That means there’s still time to reduce your 2018 tax liability with these breaks, but you need to act soon.
Good news on Section 179
Sec. 179 expensing allows businesses to deduct up to 100 percent of the cost of qualifying assets in Year 1 instead of depreciating the cost over a number of years. Sec. 179 expensing can be used for assets such as equipment, furniture and software. Beginning in 2018, the TCJA expanded the list of qualifying assets to include qualified improvement property, certain property used primarily to furnish lodging, and the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and security systems.
The maximum Sec. 179 deduction for 2018 is $1 million, up from $510,000 for 2017. The deduction begins to phase out dollar-for-dollar for 2018 when total asset acquisitions for the tax year exceed $2.5 million, up from $2.03 million for 2017.
100 percent bonus depreciation
For qualified assets that your business places in service in 2018, the TCJA allows you to claim 100 percent first-year bonus depreciation, compared to 50 percent in 2017. This break is available on computer systems, software, machinery, equipment and office furniture purchases.
And the TCJA has expanded eligible assets to include used assets; previously, only new assets were eligible.
However, due to a TCJA drafting error, qualified improvement property will be eligible only if a technical correction is issued. Also, under the TCJA, certain businesses aren’t eligible for bonus depreciation in 2018, such as real estate businesses that elect to deduct 100 percent of their business interest and auto dealerships with floor plan financing (if the dealership has average annual gross receipts of more than $25 million for the three previous tax years).
Don’t delay year-end tax planning
Keep in mind that Sec. 179 expensing and bonus depreciation can also be used for business vehicles. So purchasing vehicles before year end could reduce your 2018 tax liability. But, depending on the type of vehicle, additional limits may apply.
Investing in business assets is a powerful year-end tax planning strategy, and it might make even more sense in 2018 because of the TCJA enhancements to Sec. 179 expensing and bonus depreciation. Our advice is: Don’t go it alone. At Ciuni & Panichi, Inc. we have been helping business leaders implement tax management strategies to achieve the best result for them for 45 years. Want to learn how we can help your business? Contact Shlomo Benzaquen, CPA, MBA in our tax department at 216-831-7171 or by email here.
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